June 4 (Bloomberg) -- The toxic time bomb set by China’s
rare earths mining boom is set to boost the prospects for some
of the $12 billion of projects being developed outside the
world’s biggest supplier.

As part of its pollution clean-up, China, which controls 90
percent of the global market, is studying the introduction of
new taxes and regulations for rare earths in the second half
that are forecast to drive prices higher.

The measures will add to pressures loosening China’s
stranglehold on the production of rare earths, 17 chemically
similar elements used in products from Apple Inc.’s iPods to
Toyota Motor Corp. hybrid-electric cars and Tomahawk cruise
missiles made by Raytheon Co.

“Higher prices may spur the development of overseas rare
earths’ mining projects,” said Chen Huan, a rare earth analyst
with Beijing Antaike Information Development Co., a research
unit of the state-backed China Nonferrous Metals Industry
Association, who forecasts prices may rise more than 20 percent
because of the flagged new rules.

The proposed changes come after the World Trade
Organization ruled in March that the Asian nation already had
violated global trade rules by imposing export restrictions such
as quotas and duties on rare earths. Global stocks of rare
earths were depleted after China, which consumes about 70
percent of global supplies, cut exports from 2010.

Illegal Production

“They’re clamping down on illegal production, have
environmental concerns and there are countries which require
rare earths who don’t particularly want to be beholden to
China,” said Kevin Schultz, deputy chairman of Northern
Minerals Ltd., developing the Browns Range project in Australia.
“There’s an opportunity.”

The new measures include a value tax on producers,
according to a May 21 article in China Daily, the country’s
official English-language newspaper. Environmental compliance
certificates may be required for exports, the report said.

Chen Zhanheng, a deputy general secretary at the
Association of China Rare Earth Industry, said he wasn’t aware
of the reported new taxes. China’s National Development and
Reform Commission, its top panning agency, hadn’t replied to
questions faxed by Bloomberg.

Customers are now returning to the market as stockpiles
become depleted, meaning prices will advance, said Toronto-based
analyst Luisa Moreno at broker Euro Pacific Canada Inc.
Neodymium oxide, used to create magnets contained in wind
turbines to headphones, rose 26 percent in the year to May 29,
according to Shanghai Steelhome Information prices.

Unregulated Mines

At least 18 companies are seeking to begin production
outside China by the end of the decade with combined development
costs of about $12 billion, according to Bloomberg calculations
based on Euro Pacific figures.

Shutting down unregulated mines was a major aim of China’s
campaign that began four years ago to constrain rare earth
production. It can create waste gas, including deadly fluorine,
and wastewater laced with cancer-causing heavy metals such as
cadmium. The industry’s problems are part of a larger green
crusade in China, which in April saw the passing of the biggest
changes to its environmental protection laws in 25 years.

To be sure, the first movers outside China have struggled
with both Lynas Corp., which has invested about A$1 billion
($930 million) on a rare earths processing plant in Malaysia,
and U.S-based Molycorp Inc., with a mine in the Mojave Desert,
plagued by weak prices and delays in achieving output targets. A
rise in Chinese exports also would harm prospects for planned
projects.

Acid Leaching

Efforts to halt production using crude acid leaching in
southern China, which can damage agricultural land, mean the
nation will probably cede its dominance in the supply of heavy
rare earths, said Dudley Kingsnorth, executive director at
Industrial Minerals Company of Australia Pty.

Securing supplies of two of these minerals, yttrium, used
in laser targeting and weapons, and dysprosium, used in magnets
for Tomahawk cruise missiles and Predator drones, was flagged as
a priority by the U.S. Department of Defense in an October
report to Congress.

UCore Rare Metals Inc., Namibia Rare Earths Inc. and
Hastings Rare Metals Ltd. are among those advancing projects
outside China with high concentrations of heavy rare earths.
Hastings rose as much as 14 percent to 5 cents in Sydney before
closing at 4.5 cents in Sydney, while Alkane Resources Ltd. and
Northern Minerals both closed 9.4 percent higher.

“The Chinese don’t want to see prices tank as they are
going to see the greatest increases in the cost structure,”
said John Mair, executive director of Greenland Minerals and
Energy Ltd., seeking to produce rare earths, zinc and uranium in
Greenland. “We are going to see a diversification of mines
globally.”